Tuesday, June 25, 2013

Why the City bankster is so frightened of prison!

No-one wants to be convicted of committing a crime.

As a basic rule of thumb, I don't think this is a
remarkable statement, although there are a group of criminogenic personalities
inside the underclass milieu who probably don't give a great deal of thought to
the question, and to whom, the receipt of a criminal conviction is little more
than a social rite of passage!

No, I am talking about most normal people, to whom the
receipt of a criminal conviction carries a real social stigma.

I have been very engaged recently in trying to understand
why Government and the regulatory agencies, have been so concerned to ensure
that they do not criminalise the actions of City practitioners, even when there
are very real transgressions of both the financial market law, and the ordinary
criminal statutes!

We are a very strange society in so many ways. We examine
all social activity for signs of behaviour which we deem unacceptable, and
where such conduct transgresses the moral law which means that other people
have been put at risk, we tend to treat it more severely than if the conduct
complained of was merely anti-social.

So, where a financier treats a client in such a way that
the clients' monies are put at greater possibility of loss or the client is
exposed to greater risk of suffering financially because of the conduct of the
adviser, we examine that conduct to establish whether he or she has behaved in
anything other than in a proper manner, and the loss sustained is due to
unforeseen market circumstances, or whether the conduct of the adviser was so
egregious that it directly contributed to the losses concerned!

Where the actions of the adviser or intermediary are
shown to have directly contributed to the client's loss or damage, society,
rightly, takes a much more severe view, and examines the actions of the adviser
to establish whether the criminal law has been broken.

Take, as an example, the actions of those in the Quality
Care Commission, against whom it is alleged that their actions, by suppressing
an important critical report into conditions inside a particular institution,
have caused such public distress and loss of confidence in the NHS, that there
is now talk of criminal investigations.

I suspect that the reason for this assertion of
criminality is more to do with the embarrassment that this episode has caused
to politicians as opposed to the damage to the Common Weal, but the end result
is that there will now be a criminal investigation of the conduct of the
persons involved.

Another example which I believe throws light on our
attitudes towards criminality is the treatment of Boat Race protester Trenton
Oldfield who has been refused leave to remain in the UK after the Home Office
decided his presence was not "conducive to the public good".

The Australian, who disrupted last year's University Boat
Race by swimming into the path of the crews, was jailed for six months for his
actions when he was found guilty of
causing a public nuisance.

The Judge said he had ruined the race for everyone:
"You caused delay and disruption to it and to the members of the public
who had gone to watch it and to enjoy the spectacle of top athletes
competing."

Adding that Oldfield's actions had endangered his life
and those of others, the judge said: "Your offence was planned. It was
deliberate. It was disproportionate. It was dangerous."

These elements may well be true, but was the offence so
egregious as to deserve a custodial sentence? I suspect that Oldfield was
treated so severely because he had transgressed the social rules of one of
Britain's most important class-focused sporting events, as opposed to anything
else. The man was clearly a bounder, and a foreign bounder at that and had to
be taught a big lesson, but was his behaviour so much more damaging and
dangerous than some financial adviser who cheats his clients of thousands of
pounds of their money, or who deliberately manipulates an important market
benchmark in order to enhance his profits, at the expense of many others?

I comment regularly on our national benchmark behaviour
in criminalising single mothers on benefits who fail to report the fact that
they allow a lover to stay the night, actions of such dishonesty which enables the State to convict them of
welfare benefit fraud, and I also comment on the paucity of criminal
convictions for those who work in the financial services industry, even when
they commit offences running into hundreds of thousands of pounds.

I have been wondering why this state of affairs is
allowed to continue to exist, and I have been amused beyond measure by the
observations of ministers following the recommendations of the Banking
Commission.

The talk is all of imposing prison sentences for reckless
bankers, but as I have already said elsewhere, when we deconstruct the
conditions precedent for any such prosecution to be brought, we discover that
the new proposed law is even more complex than the perfectly good existing law
on reckless conduct which could have been imposed normally, and will mean that
it is even more difficult to convict dishonest bankers.

So why is it that imprisonment for criminal offences is
so routinely abjured when it comes to dealing with financial practitioners?
What makes the crimes of the suites and the dishonest actions of the powerful
so different that they deserve to be treated in a different manner from the
crimes committed by the underclass in the streets?

One thing is certain, the City practitioner group
believes it deserves to be treated differently, and it has been often said to
me, 'we never once thought that we would be treated like common criminals.'

So where does that presumption come from?

The British have always adopted a schizophrenic attitude
towards the way they view criminal activity. There is the crime of the streets,
burglary, theft, mugging, joy-riding, rioting, committed by identifiable criminal types, and dealt with by
the police. Then there is the kind of wrong-doing that takes place within the
financial sector, but when it happens, it gets called something else
(mis-selling), and is dealt with by regulatory
agencies.

For some reason there is a complete distinction between
the two courses of conduct. They are, and have always been dealt with
differently; penalised differently; administered differently, and for some
strange reason which I only finally understood after I had studied the work of
Edwin Sutherland, considered differently by politicians, regulators and in many
cases, even by the general public.

Edwin Sutherland, who first coined the phrase 'White Collar
Crime' separated and defined the differences in blue-collar street crimes,
which are often blamed on psychological, associational, and structural factors.
Instead, he defined white-collar criminals as opportunists, who learn to take
advantage of their circumstances to accumulate financial gain. They are
educated, intelligent, affluent, confident individuals whose jobs involve
unmonitored access to large sums of money. Precisely because these criminals
were held in such high esteem, Sutherland claimed that society tended to turn a
blind eye to the crimes they committed.

In order to test this assertion, I once conducted an
academic research project where I asked a group of financial services
compliance officers to place in order of seriousness a series of criminal
offences. In the general list I included six typical identifiable criminal
offences such as theft, fraud, joy riding, robbery, while for the other six I
used recognisable terms such as ‘insider trading’, ‘churning’, ‘misselling a financial product for the purposes of
generating more commission, ‘misselling a financial product which meant that
the client was no better off, but which generated more profit for the company’,
‘front running’, etc.

Without exception, in excess of 60 respondents put the
identifiable ordinary crimes first in the list, while putting the financial
issues last. It was as if
activities which could be described in conventional criminal terms assumed a
far greater degree of social opprobrium than did financial crimes, even though
in pure legal definitions, all the offences alleged were equally criminal and
all should be investigated and punished equally seriously.

Financial practitioners do not fear regulatory fines,
mostly because they are not individually called upon to pay them. The burden
always falls on the shoulders of the shareholders, many of whom, if the
Standard Chartered Bank case is anything to go by, will not even blame the
Executives of the bank for landing them in this mess in the first place.
Regulatory findings will always find fellow practitioners who are willing to
sympathise with them. Public scandal can be difficult to handle, but rarely
does an executive get forced from office. He may quietly resign at a later
stage, but he does so with a well-padded pension fund and other generous benefits
to cushion his existence.

This whole issue of the suitability of punishment for
serious wrong-doing has been a critical element of the longer-term failures of
the former FSA to bring a robust approach to the regulation of the UK financial
market. Ultimately, it is prosecution for crime which the financial
practitioner truly fears, but if the market knows that the regulator is
deliberately avoiding adopting its prosecutorial role, then this will lead to a
realisation that the regulator has no real teeth!

It has always been one of the greatest ironies of the
whole regulatory conundrum that criminalisation for simple offences of ordinary
'crime' is one of the greatest fears of the Executives of the financial sector.

Ironically, it is not necessarily the sentence which is
passed which is of the most importance, the true fear of the financial
practitioner is of the verdict
of 'guilty' being publicly pronounced in open court. Such a verdict immediately
takes away the sense of being a 'protected species' which too many banksters
have believed they possessed for too long.

A criminal conviction places them on a par with other
ordinary criminals, people who under any other circumstances they would go out
of their way to avoid like the plague. The fact of conviction now puts them in
the same 'criminal class' category and it spells social and commercial death
for any city practitioner who has been so convicted. It is the ultimate
exclusionary weapon of social and reputational mass destruction.

So powerful is the impact of criminalisation that even
those who had once called the convicted man a friend find it very difficult to
continue to see him, even in a private social context. As for any further
dealings with him on a commercial context, such a thought would never enter
their heads. He is now entirely beyond the pale, and he can never be received
again inside the magic circle.

This is the fundamental point, a criminal conviction
marks the end of the bankster's career. He is out on his ear, in the street,
and no-one can do business with him ever again!

Can you imagine the impact that such an action would have
had on the careers of Fred the Shred, or Bob Diamond or any of the other monsters
of finance who have presided over the downfall of the British banking
reputation, if they had been, at some stage in their career, told that the
criminal activities being carried on in their banks would mean that they were
going to be prosecuted for permitting such activities to carry on? Do you not
think that it might have caused them to make enquiry and put a stop to whatever
was going on?

This may be what makes it so difficult for regulators to
bring such a powerful weapon
to bear on those whom they perceive may come from the same class and socio-economic background as themselves!
They won't admit this of course, and they tend instead to use the excuse that
financial crime cases are too difficult to get convicted, that juries do not
understand them, although that has never been my experience.

One of the reasons for the lack of public confidence that
permeates the body politic of this country is because the ordinary man and
woman in the street simply does not believe that their interests have any
champion, whether in politics, or government, and that they are merely expected
to carry on being the pawns in the game played by the rich and powerful.

I have spoken to literally hundreds of such people who
protest that they feel completely disenfranchised from any system which exists
to protect their interests, whether it be in the form of a fair hearing when
they have been cheated of their hard-earned money, or a forum from which they
can get equal treatment when they wish to challenge the arbitrary decision-making
of the financial institutions.

Civil servants, regulators and government departments
seem to exist to protect the interests of politicians and regulated members,
not to provide the citizen with any right of redress or fair hearing when they
have been defrauded.

One way to start reclaiming the balance of fairness would
be for the powers that be to treat financial practitioners with equal rigour
when they commit obvious criminal offences. Once the public got the impression
that there was only one law for all, and that it was applied with equal
fairness, it would go a long way to begin restoring confidence in the way this
country is run!

4 comments:

As a slight aside, did you watch Question Time last week (the one with Russel Brand)?

One thing that stood out for me was the woman member of the audience telling us how she'd resigned from the investment bank she'd worked for because of corruption in her office from the Compliance Officer.

I imagine it went over the heads of both the panel and audience, probably with no idea of what that meant.

I even think the bank clerks who sold PPI and interest-rate swaps committed fraud and should be prosecuted.I found PPI attached to a small loan some years ago. I hadn't asked for it and it was obvious it did not protect me.In my early career as a cop I arrested many people who would struggle in a battle of wits with my dog. As a university lecturer I taught a lot of bank staff and none of them were so dumb as not to be able to see PPI as a con. Even the low-level bank staff are more culpable (at least morally) than most of the chummy I nicked.

What you are asserting is right. My question is whether any of our cops of SIS know what the bankers are up to. In terms of business analysis the accounts they publish tell us almost nothing because we can't visit the assets and see what the market value of assets they claim are. There are lots of reasons to think they are trading whilst knowingly bankrupt.

I even think the bank clerks who sold PPI and interest-rate swaps committed fraud and should be prosecuted.I found PPI attached to a small loan some years ago. I hadn't asked for it and it was obvious it did not protect me.In my early career as a cop I arrested many people who would struggle in a battle of wits with my dog. As a university lecturer I taught a lot of bank staff and none of them were so dumb as not to be able to see PPI as a con. Even the low-level bank staff are more culpable (at least morally) than most of the chummy I nicked.

What you are asserting is right. My question is whether any of our cops of SIS know what the bankers are up to. In terms of business analysis the accounts they publish tell us almost nothing because we can't visit the assets and see what the market value of assets they claim are. There are lots of reasons to think they are trading whilst knowingly bankrupt.

About Me

Having spent my career dealing with financial crime, both as a Met detective and as a legal consultant, I now spend my time working with financial institutions advising them on the best way to provide compliance with the plethora of conflicting regulations and laws designed to prevent and forestall money laundering - whatever that might be! This blog aims to provide a venue for discussion on these and aligned issues, because most of these subjects are so surrounded by disinformation and downright intellectual dishonesty, an alternative mouthpiece is predicated. Please share your views with what is published here from time to time!